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Sweden, Ikea and Taxes

May 18, 2012 • Government, Innovation, Labor, Macroeconomic Measurement, Regulation, Uncategorized • 335 Views    No Comments

Our story starts when Ikea’s founder, Ingvar Kamprad, left Sweden during the 1970s. It ends with Sweden’s current finance minister saying that taxes were the reason.

Associated with a more humane form of capitalism, Sweden was the prototype for the welfare state. But then a real estate bubble burst during the early 1990s. Government spending soared as the economy sank.

Sounds familiar.

Sweden’s response included less public sector involvement through deregulation of industries like postal services and electricity. They eliminated a wealth tax, inheritance tax and gift taxes. They cut the size and duration of unemployment benefits. With retirement options at 61, 65 and 67, their political leadership has suggested 75 years old.

Because the Swedish economy has been relatively healthy, it is being cited as a country that coped with contraction by cutting taxes, diminishing spending, and vastly improving its debt to GDP ratio. Economist Ed Yardeni says that Sweden’s story proves that more spending is not necessarily the answer to recession and unemployment.

And that takes us back to Ikea. Sweden’s finance minister says that his goal is to attract people like Ikea’s Ingvar Kamprad to start businesses, grow them, and remain in Sweden because it is business friendly.

Our Bottom Line: Don’t we always seem to return to the Smith/Hayek v. Keynes debate? Do we need more business friendly environments or more government spending?

To read about how Sweden’s economy is changing, you might want to look here in the Globe and Mail while here is what The Economist has to say and here is The Spectator’s discussion.  For a more academic consideration of the changing Swedish economic model, this Harvard paper is a possibility. And, here is the “Ease of Doing Business” rank for Sweden.

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